Use cost-effective and accessible group term plan to boost coverage

However, supplement this plan with an individual term policy for enhanced security

Bajaj Allianz Life Insurance Company has recently launched a group term cover for the customers of the post office and India Post Payments Bank. This cover is available in two variants priced at Rs 2,584 and Rs 5,168 (inclusive of GST) for a sum assured of Rs 5 lakh and Rs 10 lakh, respectively.

How does it work?

Group term insurance is offered to an affinity group — employees of a company, customers of a bank, members of a club or an association, etc.

 “One condition is that the group should not have been formed specifically for the purpose of obtaining insurance,” says Apaar Kasliwal, executive director and chief operating officer, PolicyBoss.

The sum insured and risk profile (the latter depending on, say, occupation) determine the premiums of these policies. A larger-sized group is likely to be charged a lower premium per person. Pricing also depends on whether purchasing the cover is compulsory or optional for group members. The cost is usually lower in the former case. “The premium can vary between Rs 150 and Rs 500 per Rs 1 lakh of sum assured,” says Kasliwal.

No individual underwriting

Individual members benefit from being part of a group. “The group term cover we have launched for members of the post office and India Post Payments Bank offers age-independent pricing: all buyers pay the same premium irrespective of age,” says Dheeraj Sehgal, chief distribution officer, Bajaj Allianz Life Insurance Company.

Individuals don’t have to undergo medical underwriting. “This means everyone gets covered automatically,” says Kapil Mehta, co-founder and chief executive officer (CEO), SecureNow. These plans are a boon for people with pre-existing diseases who are finding it difficult to obtain an individual cover.

The paperwork is simpler. “When you go to purchase an individual cover, you will typically be asked for your salary slip, three-four years of income-tax returns, etc. None of these financial documents have to be submitted here,” says Kasliwal.

Group term insurance is also far more cost-effective than an individual cover.

Inadequate cover

A group term cover is renewable every year. “If a company gets into financial trouble, it may decide not to renew the cover,” says Mehta.

The premium can change year-on-year based on claims experience. “In an individual cover, the premium remains fixed throughout the policy tenure,” adds Mehta.

Group policies tend to have limited tenures. “The cover from your employer terminates at retirement. Most other group covers also don’t extend beyond 65,” says Kasliwal.

The sum insured is often inadequate. “The sum insured depends on the group’s decision and doesn’t usually exceed Rs 5-Rs 15 lakh,” says Kasliwal. Most high-income customers nowadays require a sum insured of Rs 1 crore and above. Group policies also can’t be customised using riders.

Finally, a member loses this cover on exiting the affinity group.

Who should opt for it?

Many 20-30-year-olds are reluctant to buy a pure protection plan. “They can buy a group plan which will offer them a cover of Rs 5-Rs 10 lakh. Once their responsibilities increase and their affordability improves, they can buy an individual cover,” says Sehgal.

Mehta is of the view that anyone who is offered a group term cover should opt for it. “The premium is low, no medical test is required, and on-boarding is simple,” he says.

Kasliwal says a group cover should be avoided only if it is expensive.

Supplement with individual cover

If you have the option to be part of two group covers, go for the less expensive one. “Compare the premium as a percentage of sum insured of each of the offerings,” says Mehta.

A group cover must be supplemented with an individual cover. Growing lifespans are forcing people to work after retirement, with their families still dependent on their earnings. “Such people will need an individual cover that can provide protection till the age of 75 or 85,” says Kasliwal.

Many people may quit large organisations and move to a start-up, which may not offer a group term cover. They, too, will feel the need for an individual cover. Buy the individual cover early as the premium is lower at a younger age.